Czech Republic vs BEAS SUN s.r.o., July 2024, Supreme Administrative Court, Case No 6 Afs 255/2023 – 65

Category: Benchmark, Range and Median, Comparability Analysis, Services and Fees, Transfer Pricing Methods | Tag: , , , , , , ,
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The tax authorities chose the cost plus method for determining the arm’s length price for low value-added intra-group services provided between related parties (Cost+). It took the parent company’s wage costs as the basis, to which it added a mark-up of 7 %, the maximum mark-up under Guideline D-10. On that basis, they concluded that the applicant had obtained services from the parent company that were different from the price at which an unrelated person would have provided the services.

An appeal was filed with the regional court where BEAS SUN s.r.o. argued that the tax authorities should have chosen the comparable uncontrolled price (CUP) method, rather than the Cost plus method, to determine the reference price.

The Regional Court stated that the CUP method is not superior to the other methods resulting from Guideline D-10 and the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations issued by the Organisation for Economic Cooperation and Development (‘the OECD Guidelines’). The CUP method is preferred only if it can be used reliably. According to the Regional Court, the superiority of the CUP method is not apparent from the case-law of the Supreme Administrative Court. The case-law merely implies an obligation to state the reasons why the CUP method cannot be applied, on the ground that there are no independent transactions which are at least in substance comparable to the transaction under examination. According to the Regional Court, the tax authorities complied with that requirement. The tax authorities duly explained that the applicant purchased services which BEAS, a.s. supplied only to it or only to its subsidiaries. The tax authorities could not identify similar external independent transactions where services were provided in a similar content, scope and quality, given the wide range of activities provided. The Regional Court therefore confirmed that the tax authorities had sufficiently justified why they applied the Cost+ method instead of the CUP method.

BEAS Sun then appealed to the Supreme Administrative Court.

Judgment of the Court.

The Supreme Administrative Court upheld the decision of the Regional Court.

Excerpt in English

“[31] The comparable independent price (CUP) method is a direct method and can be applied in a case in which an independent transaction that is comparable to the controlled transaction under examination can be found. This method is the simplest in terms of applicability, but it requires a high degree of comparability of the transactions being compared, which is also its weakness. Since there is no similar independent transaction for many of the transactions between related entities, this direct method cannot always be applied and one of the indirect methods must be used (cf. the judgment of the Supreme Administrative Court of 23 January 2013, No 1 Afs 101/2012-31).

[32] The ‘cost plus’ method is an indirect method. It is based on the costs incurred by the supplier in a dependent transaction for the purchase of assets or services provided to the related undertaking by an independent seller. An appropriate mark-up is then added to these costs. It is applied to low value-added service cases using a gross profit mark-up. The advantage of the Cost+ method is that it does not require as much attention to the comparability of the product or service as the CUP method. Thus, this method must analyse the differences between the controlled and independent transactions which have an impact on the amount of the mark-up in order to determine which adjustments should be made to the relevant mark-up of the independent transaction (cf. Supreme Administrative Court judgments of 23 January 2013, 1 Afs 101/2012-31, and 29 January 2020, 9 Afs 232/2018-63).

[33] On the basis of this case law, the Supreme Administrative Court finds that the tax authorities and the Regional Court did not err in relying on the OECD Directive and the guidelines issued by the General Tax Directorate, specifically Guideline D-10. The legal basis for their application was precisely Section 23(7) of the Income Tax Act. This was confirmed by the case law of the Supreme Administrative Court, which predated the decision of the tax authorities. The complainant disagreed, but did not put forward any opposing argumentation that would call into question the case-law referred to above.”

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Related Guidelines

  1. TPG2022 Chapter VII paragraph 7.31The method to be used to determine arm’s length transfer pricing for intra-group services should be determined according to the guidelines in Chapters I, II, and III. Often, the application of these guidelines will lead to use of the CUP or a cost-based...
  2. TPG2022 Chapter II paragraph 2.3Traditional transaction methods are regarded as the most direct means of establishing whether conditions in the commercial and financial relations between associated enterprises are arm’s length. This is because any difference in the price of a controlled transaction from the price in a...
  3. TPG2022 Chapter VII paragraph 7.46The guidance in this section is not applicable to services that would ordinarily qualify as low value-adding intra-group services where such services are rendered to unrelated customers of the members of the MNE group. In such cases it can be expected that reliable...
  4. TPG2022 Chapter VII paragraph 7.48The fact that an activity does not qualify for the simplified approach, as defined under paragraph 7.45, should not be interpreted to mean that that activity generates high returns. The activity could still add low value, and the determination of the arm’s length...
  5. TPG2022 Chapter VII paragraph 7.47The following activities would not qualify for the simplified approach outlined in this section: services constituting the core business of the MNE group; research and development services (including software development unless falling within the scope of information technology services in 7.49); manufacturing and...
  6. TPG2024 Chapter IV Annex III paragraph 4242. However, it is recognised that there may be instances (although these may be rare, as the distribution of commodities is excluded from scope) where the application of the comparable uncontrolled price method using internal comparables could be potentially more appropriate to apply...


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  2. Germany vs “X Sub GmbH”, December 2016, Münster Fiscal Court, Case No 13 K 4037/13 K,FX Sub GmbH is a German subsidiary of a multinational group. The parent company Y Par B.V. and the financial hub of the group Z Fin B.V. – a sister company to the German subsidiary – are both located in the Netherlands. In...
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